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VR/AR startups drew record investment in 2017 - Report

Digi-Capital says $3 billion haul led by Magic Leap, Improbable, Unity, Niantic; VR investment cooling as mobile AR ramps up

2017 was a record year for VR and AR investment, according to Digi-Capital. The firm today released excerpts of its most recent Augmented/Virtual Reality Report and Deal Database, showing that start-ups in the sectors cumulatively raised $3 billion over the course of last year.

While that total represents dozens of funding rounds and separate investments, just four companies accounted for nearly half of the dollars poured into the market. Magic Leap and Improbable each saw investments of $500 million, while established players Unity and Niantic each raised an additional $200 million.

Despite those handful of deals shifting the averages, Digi-Capital managing director Tim Merel said there were some larger trends to be pulled out of the information.

"Last year also saw a sea-change in terms of VC behavior, driven in no small part by the rise of mobile AR and the more advanced stage of computer vision/machine learning (CV/ML)," Merel said. "That shift saw VCs cooling on VR in the first half of the year, with a number of startups pivoting to where the money is commercially and for fundraising."

After interviewing 30 venture capitalists in California and China, Digi-Capital underscored a number of takeaways about where investment is headed in the coming year. On the mobile AR front, the firm said VCs are looking to put their money into native mobile AR approaches rather than ports of existing tech. And while Digi-Capital believes the mobile AR-capable hardware will have an installed base of 900 million by the end of this year, it doesn't expect revenues from mobile AR to take off until next year. The real winners in the sector will also be hard to spot in the near future, with projected mobile AR exits in the next two years to top out around the $100 million mark.

"The AR/VR market ([in] particular mobile AR and smartglasses) is at the earliest stages of what it could become, and seasoned early stage investors know that it will take time to scale," Merel said. "So despite recent AR/VR investment records, the first half of this year will demonstrate whether or not that trend will continue."

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